Islamic Relief Report-18!10!12

UNITED NATIONS CHILDRENS FUND - UNICEF
INTERNAL CONTROL REVIEW REPORT

ISLAMIC RELIEF

September 2012

United Nations Childrens Fund (UNICEF)
Internal Control Review Report
Islamic Relief

Table of Contents Page

GLOSSARY OF ABBREVIATIONS ............................................................................................... 1
1. Background ................................................................................................................. 2
1.1 Introduction ............................................................................................................. 2
1.2 Audit Scope .............................................................................................................. 4
1.3 Assignment Objectives .............................................................................................. 5
1.4 Methodology ............................................................................................................ 7
2. Summary of Findings .................................................................................................... 9
2.1 Islamic Relief Kenya ................................................................................................ 10
2.2 Islamic Relief Somalia .............................................................................................. 11
3. Islamic Relief Kenya - Findings on Internal Controls Systems .......................................... 12
4. Islamic Relief Somalia - Findings on Internal Controls Systems ........................................ 34

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GLOSSARY OF ABBREVIATIONS

AWP Annual Work Plan

CPAP Country Programme Action Plan

FACE Fund Authorization and Certificate of Expenditure

HACT Harmonized Approach to Cash Transfer

IP Implementing Partner

IRK Islamic Relief Kenya

IRS Islamic Relief Somalia

PCA Project Cooperation Agreement

UN United Nations

UNICEF United Nations Childrens Fund

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1. Background
1.1 Introduction

Pursuant to the UN General Assembly Resolution 56/201 on the triennial policy review of
operational activities for the development of the United Nations system, a number of UN
Agencies have adopted a common operational framework for transferring cash to
government and non government Implementing Partners.

Under the Harmonized Approach to Cash Transfers (HACT) Implementing Partners will use
common forms and procedures for requesting cash and reporting on its utilization.
Agencies will adopt a risk management approach and will select specific procedures for
transferring cash to partners, and undertake implementation of assurance activities to
determine whether expenditures that took place were for the purpose intended.

Islamic Relief

Islamic Relief (IR) is an International NGO established in Birmingham, UK in 1984,
Registered Charity No: 328158. IRs main objective is to promote sustainable social
development by co-operating with local communities through relief and development
programs. IR aims to help the needy regardless of race, religion or gender.

IR is an NGO in consultative status (category special) with the Economic and Social Council
of the United Nations, full members of British Overseas NGOs for Development (BOND) and
Disaster Emergency Committee (DEC), UK Platform of the Liaison Committee of
Development NGOs to the European Union and signatories to the Code of Conduct for The
International Red Cross and Red Crescent Movement and NGOs in Disaster Relief ". The
majority of IRs funding is from private donations; however, we also receive support from
institutions such as DFID, ECHO, WFP, EC, UNICEF and UNHCR.

Vision: A caring World where the basic requirements of people are fulfilled
Mission: Islamic Relief is dedicated to alleviating the poverty and suffering of the worlds
poorest people.
"Whoever saved a life, it would be as if he saved the life of all mankind" Qur'an 5:32

Islamic Relief Kenya

Islamic Relief Kenya (IRK) is registered under the Kenyan government NGO board (Reg.
No. OP. 218/051/204/0374/3386) and opened offices in Nairobi and Mandera to run its
emergency programme in Mandera district as of 1
st
March 2006. IRK is currently involved
in drought recovery, rehabilitation and development programmes.

IR has secured License No. SDGT-502 on August 19, 2005 from the USA Office of Foreign
Affairs Assets Control (OFAC) that it is not among Specially Designated Global Terrorist
pursuant to section 594.201 of Global Terrorist Sanction regulations, 31 C.F.R Part 594.
It has also won the UK charitable organizations 2006 accountability award.

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Nationally, IRK is an active member of the Food Security Steering Group, WESCORD,
Health and Nutrition working group among others. It is also a member of District Steering
Group and the various thematic groups. Currently, it is chairing the District Nutrition
working group meeting.

Current programmes of IRK

Health and nutrition programme:- Supplementary feeding programme, out patient
therapeutic feeding programme, support to district Ministry of Health in outreach
programmes and accelerated polio campaigns, Vitamin Supplementation
Vaccinations, Outreach medical services, Health Education, capacity building of
community health committees (CHCs) community health workers (CHWs). Most of
these programmes are funded by DFID, IR-UK, UNICEF, WFP and ECHO.

Water and sanitation: - Water and sanitation facility rehabilitation / expansion,
training of water resources management committees, water quality monitoring,
hygiene promotion campaigns and training communities on good hygiene and
sanitation practices. Funding is by UNICEF, ECHO, private donors and IR UK. IRK
has rehabilitated number of water points (borehole and pans) since 2006 as funded
by these donors.

Livelihood and food security: in the effort of increasing the resilience to shock
through re-building the asset level of drought affected, IRK is supporting farmers in
the riverine irrigation along Daua River and micro-finance. Funding for these
ongoing projects is from IR private donors, ECHO, IR-UK, IR-Switzerland and Qatar
Charity. It is hoped to receive support for riverine irrigation and water harvesting
based irrigation from EC.

Child welfare programme: over 750 children sponsored in Mandera and each
receiving 93 Euro each quarter to supplement their basic needs food, health and
education needs. Funding is obtained from IR one to one sponsorship programme

Islamic Relief Somalia

Islamic Relief Somalia (IRS) is registered under the Kenyan government NGO board (Reg.
No. OP. 218/051/204/0374/3386) and opened offices in Hargeisa (Somaliland)
Mogadishu (South Central) and Galkacyo (Puntland) to run its emergency/Livelihood and
Recovery programme in Somalia.

IR Somalia has been working in Somalia since 2006 providing varied integrated
interventions in line with humanitarian principles and code of conduct as way of ensuring
the relief efforts reach the vulnerable communities. Internally IR Somalia has a robust
accountability framework and a dedicated monitoring evaluation, accountability and
learning (MEAL) coordinator to oversee the implementation of the projects in tandem with
community expectation and aspirations.

The organization has close to 350 workforce spread all over Somalia with aim of ensuring
the delivery of right amount of relief efforts at the right opportune time when the needs
are eagerly anticipated by the beneficiaries. IRS has a human resource manual, IR code of
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conducts and induction package. The staff work rate is monitored through attendance
sheet to ensure the smooth implementation of the project.

Nationally, IRS is an active member of the Strategic Advisory Group, Humanitarian
Coordination Team (HCT), Clusters (WASH, Health and Education). IR was recently
inaugurated as an active member of Return Consortium to secure funds and facilitate the
returning of community members to village of origin.

Current programmes of IRS

Health and nutrition programme: - IRS has been providing basic emergency health
services in several areas through mobile services and fixed health post. In addition
it supports the health Ministries and identified sites with essential medical supplies.
In an effort to contribute towards reducing Global Acute Malnutrition (GAM) in
particular to Somalia context and more so South Central Somalia; IRS has been
rolling out supplementary feeding program to vulnerable children and mothers. For
the purpose of sustainability and continuity, IRS normally conducts capacity
building trainings. Most of these programmes are funded by DFID, IR-UK, UNICEF,
ECHO, CAFOD, DEC and IR partners.

Water and sanitation: - Water and sanitation facility rehabilitation / expansion,
training of water resources management committees, water quality monitoring,
hygiene promotion campaigns and training communities on good hygiene and
sanitation practices. IRS has also been engaged in clean up exercise, refuse
collection and provision of latrines as way of improving overall hygiene and
sanitation in IDP settings. Funding is by UNICEF, ECHO, private donors and IR UK.
IRS has rehabilitated and drilled number of water points (borehole, shallow wells,
berkhads and pans) since 2006 as funded by these donors.

Livelihood and food security: in the effort of increasing the resilience to shock
through re-building the asset level of drought affected, IRS is supporting farmers in
the riverine irrigation along Juba river and micro-finance. Funding for these
ongoing projects is from IR private donors, ECHO, IR-UK, IR-Switzerland, DEC and
Middle East Emerging Markets (MEEM). It is hoped to receive support for riverine
irrigation and water harvesting based irrigation from EC.

Child welfare programme: over 890 children sponsored in Somalia and each
receiving $250 each quarter to supplement their basic needs food, health and
education needs. Funding is obtained from IR one to one sponsorship programme

1.2 Audit Scope
Ernst & Young was contracted by United Nations Childrens Fund (UNICEF) to provide an
overall assessment of its implementing partners internal control system.
The purpose of the audit is to assess the existence and functioning of an implementing
Partners internal controls for the receipt, recording and disbursement of cash transfers
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and the fairness of a sample of expenditures reported in the FACE forms. The period
covered under the review was from 1 January 2010 to 31 August 2012.
UNICEF also provided an additional scope to the Islamic Relief audit assignment. These
are:
UNICEF Somalia Projects:
1. Education Project: South and Central Somalia Emergency Education Support focused
on the following items:
Incentives paid to teachers
Human Resource Management
Construction of Temporary Classrooms
Development of Child Friendly Playgrounds
2. WASH Project co-funded by UNICEF Somalia (75%) and Islamic Relief (25%):
Assessment of the IRS access/presence in the Al Shabaab, AS, controlled area;
ascertaining the IRSs contribution (25%) to the project and related fund flow;
assessment of the water trucking component of the PCA.
UNICEF Kenya Project:
1. WASH project: Water and Sanitation facility development in North Eastern Province
and Rift Valley (Turkana Central). Review of the overall project implementation and
transactions processing.
1.3 Assignment Objectives

The specific audit objectives were as follows:

i) Review of IRs programme management system; under this objective, we conducted
the following review procedures:

! Reviewed Project Cooperation Agreement (PCA), Fund Authorization and
Certificate of Expenditure (FACE) forms and where applicable; UNICEF relevant
manuals, to determine whether requests for disbursements and reports on
utilization of cash were provided for activities described in the PCA.
! Through interviews and review of progress reports prepared by IR, established
whether activities were implemented as planned. Where activities (timeliness,
type, quantity) deviated significantly from the original PCA, established whether
this was by mutual agreement by IR and UNICEF. Determined the causes for
significant delays or changes, if any.
! Reviewed IRs system of monitoring progress and review of reports, including
field monitoring visit reports and progress reports, to assess whether IR met its
responsibilities for monitoring as described in the PCA.
! Reviewed whether recommendations recorded in the field/project monitoring
reports or minutes of meetings between IR and UNICEF have been implemented
by IR.
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ii) Assessment of IRs internal controls; under this objective, we conducted the
following review procedures:

! Conducted a general assessment of internal controls according to established
internal controls standards.
! Reviewed whether recommendations made in the micro assessment or previous
audit(s) were implemented or, if not, determine the implementation status.
! Reviewed FACE forms, including the request for direct payments, to assess
whether they were signed by designated officials of IR.
! Reviewed the processes used by IR for authorizing expenditures and assess
whether they are in accordance with the PCA.
! Reviewed the process for procurement/containing of supplies and services and
assess whether it is transparent and competitive.
! Reviewed the use, control and disposal of non-expendable equipment and
assessed whether it is in compliance with government policies (or UNICEF
relevant manuals, where so specified in the PCA; and also, whether the
equipment procured met the identified needs and whether it is used in
accordance with intended purposes.
! Reviewed relevant IT systems.
! Where UNICEFs funds pay for the personnel or consultants, reviewed the
process followed for recruiting IRs personnel and consultants and assess
whether it is transparent and competitive.
! Reviewed IRs accounting records and assessed their adequacy for maintaining
accurate and complete records of receipt of funds provided by UNICEF and
disbursements of cash.
! Interviewed officials of IR, as necessary, to ensure full understanding of the
functioning of the internal control system.

iii) Review of sample of FACE forms and transaction testing; under this objective, we
conducted the following review procedures:

! Assessed whether the funds received from UNICEF were deposited into IRs bank
account by verifying the bank statement.
! Reconciled the expenditure totals, per activity, on the FACEs to the list of
individual transactions (i.e IRs accounting records).
! For each activity, reviewed the nature of expenditure and assess the
reasonableness. Discuss any concerns with management.
! Selected a sample for testing, carried out a verification of the accuracy and
completeness of supporting documentation (e.g. vouchers, invoices, purchase
orders, receipt of goods, bank transfers/checks, bank statements) the
description of the transaction (per the accounting records) and per the PCA.
! Compared the price paid for goods or services against the market benchmarks.
Include other appropriate measures of value for money.

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1.4 Methodology

The audit was performed using the Ernst & Young audit methodology, which requires
general planning and identification of areas of audit significance, as well as evaluating risk
inherent in significant accounts.

Our procedures and tests have been tailored to meet the specific objectives of the
assignment. Specific procedures performed are laid out in note 1.3.

8

PRIVATE AND CONFIDENTIAL
September 20, 2012
60586571/27/sk/777

The Regional Director
Islamic Relief
P O Box 18089
NAIROBI

Dear Sir,
INTERNAL CONTROL REPORT FOR THE PERIOD 1 JANUARY, 2011 TO 31 JULY, 2012
We are pleased to submit our report on the internal control review of Islamic Relief Kenya
and Islamic Relief Somalia.

Our review of the organizations systems of internal control is carried out to assess the
existence and functioning of Islamic Relief Kenyas and Islamic Relief Somalias internal
controls for the receipt, recording and disbursement of cash transfers and the fairness of
a sample of expenditures reported in the FACE forms.

We performed our audit as per the agreed terms of references dated 14 August 2012
(UNICEF/AUDIT/IRK/2012-08-002) and as per the assignment objectives laid out in note
1.3 of this report.

We were not engaged to, and did not perform an audit, the objective of which would be the
expression of an opinion on the accounts or items thereof. Accordingly, we do not express
such an opinion.

This report is intended for the information of Islamic Relief Kenya/Somalia Programmes
and UNICEF. However, upon release this report is a matter of public record and its
distribution is not limited.

Nairobi

..2012
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2. Summary of Findings

We have set out issues identified during the course of our audit and have not attempted
to indicate all possible improvements which a special review might develop. This report
covers an assessment of the organisations internal control system.

A description of any specific internal control weaknesses noted in the financial
management of the organization and the audit procedures followed to address or
compensate for the weaknesses. Recommendations to resolve/eliminate the internal
control weaknesses noted have been included.

Risk Severity

The audit observations have been categorized by risk severity as high, medium or low.
These categories have are described below:

High: Action that is considered imperative to ensure that UNICEF is not
exposed to high risks (i.e. failure to take action could result in major
consequences and issues).

Medium: Action that is considered necessary to avoid exposure to significant risks
(i.e. failure to take action could result in significant consequences).

Low: Action that is considered desirable and should result in enhanced control
or better value for money.

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2.1 Islamic Relief Kenya

REF Summary of the issues Risk severity
(High/
Medium/Low)
3.1 Expenditure Review
3.1.1 Split Payments for the Same Invoice High
3.1.2 Unsupported Expenditure High
3.1.3 No list of Prequalified Suppliers Medium
3.1.4 Chart of Accounts Low

3.2 Payroll/Human Resources
3.2.1 Late Remittance of Statutory Deductions Medium

3.3 Cash and Bank
3.3.1 Errors in the Bank Reconciliations High

3.4 Fixed Assets
3.4.1 Incomplete Vehicle Log Sheets Medium
3.4.2 Vehicles under Third Party Title Ownership Medium
3.4.3 Controls over Fixed Assets Medium

3.5 Prior Year Recommendations
3.5.1 Prior Year Recommendations Not Acted on. Medium

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2.2 Islamic Relief Somalia

REF Summary of the issues Risk severity
(High/
Medium/Low)
4.1.1 Unsupported Expenditure High
4.1.2 Irregular Payments through Galaxy Star High
4.1.3 Incomplete Tender Analysis Forms High
4.1.4 Lack of Evidence on completion of Projects High
4.1.5 Award of tenders to Related/Same Entities High
4.1.6 Uncertified Bank Statements submitted by Bidders High
4.1.7 Inconsistencies in Accountability for Funds Issued High
4.1.8 Attendance List for Teachers with Same Signature High
4.1.9 Counterpart Contribution not Verifiable High
4.1.10 Differences in Quantities Requested and Quantities Paid for High
4.1.11 Construction of Pit Latrines in Mogadishu Benadir Region High
4.1.12 Irregular Purchase of Drugs from Salochin Pharma High

4.2.1 Incomplete Personnel Files Low

4.3 Cash and Bank
4.3.1 Errors in the Bank Reconciliations High

4.4 Fixed Assets
4.4.1 Incomplete Asset register Medium
4.4.2 Missing Logbooks Medium

No prior year audits

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3. Islamic Relief Kenya - Findings on Internal Controls Systems


3.1.1 Split Payments for the same Invoice

Observation

We noted instances where a payment to a supplier was made in several cheques being
drawn on the same date. For example Kshs 68,000 was paid to Abdi for tyres for KAV. The
payment was paid using four cheques 3713, 3714, 3715 and 3716 each for Kshs 17,000.

Risk

This is done to by-pass authorization limits set by the organization.

Recommendation

Payments made to a supplier to settle one invoice should be done using one cheque to
avoid unwarranted bank charges and to maintain audit trail on transactions

Management Comment

3.1.2 Unsupported Expenditure

Observation

There was an instance where one transaction from our sample was not fully supported,
as shown below:-

Date No Memo
Amount
KShs
Amount
Supported
KShs
Amount
Unsupported
KShs
31-Jan-11 GJ 2011/4
Liquidation of
Wajir Jan 2011 106,100 79,600 26,400

106,100 79,600 26,400

Risk

Payments may be made for services/goods not received.

Recommendation

All expenditure incurred should be supported with adequate documentation.

Management Comment

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3.1.3 List of Pre-qualified Suppliers not maintained

Observation

We noted that IRK does not have a list of pre-qualified suppliers and thus sourcing of
quotations is done randomly to any supplier.

Risk

IRK may not get value for money for the goods/services that it procures.

Recommendation

IRK should have a list of pre-qualified suppliers where quotations are sought. This can
be done at the beginning of every year and the list updated as management deems fit.

Management Comment

3.1.4 Chart of Accounts

Observation

We noted that the chart of accounts used in the field is too long. There is no control for
the creation of accounts. Field offices can create accounts at their own discretion. The
ledger from the field is used to update the ledger in the Nairobi office.

Risk

Lack of control in creation of ledger accounts may be misused as a loop hole for
perpetrating fraud. Errors in these accounts may go undetected and therefore
uncorrected.
Recommendation

The creation of new accounts should be done on approval by designated senior officials
of the organizations, possibly the finance manager in Nairobi..

Management Comment


3.2.1 Late Remittance of Statutory Deductions

Observation

NSSF for the months of September 2011 and December 2011 were remitted late as
shown below:
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Month Due Date Date remitted Days Late
Sep-11 15-Oct-11 15-Nov-11 30
Nov-11 15-Dec-11 21-Dec-11 6

Risk

IRK may incur penalties.

Recommendation

Management should ensure that all statutory deductions are remitted by the due date
to ensure compliance with local regulations.

Management Comment

3.3 Cash and Bank

3.3.1 Errors in Preparation of Bank Reconciliations

Observation

The bank reconciliation statements prepared lacked some important information such
as the dates of the outstanding cheques. There were long outstanding items that were still
appearing in the bank reconciliation for February 2012 as shown below:

Date cheq no Description Amount KShs
29-Jan-10 2048 NHIF 16,000
19-Feb-11 2117 NHIF 16,000
25-Feb-11 3058 Khalil Building 179,000
25-Feb-11 3219 KPLC 7,990
25-Feb-11 3247 KPLC 2,570
27-May-11 3591 Hussein Ali 283,500

505,060

The bank reconciliations for Garissa, Wajir and Mandera are not revised after being reviewed in
Nairobi. The cash book balances for KCB Wajir and KCB Mandera showed a book overdraft due
to the field offices writing cheques which were in excess of the funds in the account. This has
therefore brought some differences in the amounts in the bank reconciliations and the audited
financial statements as shown below:

Bank
Bank Reconciliation
Amount KShs
Audited Accounts
Amount KShs Difference
Barclays KShs 41,347,592 41,394,858 (47,266)
KCB Wajir (6,179,851) 2,453,734 (8,633,585)
KCB Mandera (608,478) 445,793 (1,054,271)

34,559,263 44,294,385 (9,735,122)
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There was no evidence that some bank reconciliation statements for Mandera and Garissa were
reviewed. The bank reconciliations for May 2011 to Aug 2011 for Mandera were not reviewed
while the bank reconciliations for March to May 2011 for Garissa were not reviewed.

Risk

Bank reconciliation is a key control tool and improper bank reconcilations may result in
occurence errors and/ frauds being penetrated.

Recommendation

Cheques should only be written once it has been confirmed that there are sufficient funds in the
bank account. Bank reconciliation statements should be prepared and have all the vital details
such as the dates of the reconciling items. Stale cheques should be reversed once they are more
than 6 months old. Bank reconciliations should be reviewed by the finance manager.

Management Comment

3.4 Fixed Assets

3.4.1 Incomplete Vehicle Log Sheets

Observation

We noted that the vehicle log sheets maintained by the drivers are not signed by the
staff who uses the vehicle. The log sheets were signed by the driver only and thus this
does not adequately control the use of the organization vehicle.

Risk

Vehicles may be misused by the drivers.

Recommendation

The vehicle log should be updated to include two columns for signing, the drivers
signature and the staff who uses the vehicle. This will serve as a confirmation that the
trip was made and was for the purpose indicated in the log sheet.

Management Comment

3.4.2 Vehicles under Third Party Ownership

Observation

We noted that there are some vehicles maintained in the asset register of IRK whose
ownership documents are not in the name of IRK.

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Specific examples include:

Registration Make Holder of Title
KBQ 525N Honda CRV AL Husnain Motors Ltd
KBQ 067F Toyotal Prado Alinur Maalim Ismail
KBR 748c Toyota Hilux Big Motors Ltd

Risk

The vehicles listed in the asset register may not belong to Islamic Relief and thus do not
have the title to the same. Further, ownership of such vehicles to IRK cannot be
verified.
Recommendation

All assets that title vests with IRK should be transferred to IRKs name. Any asset that
does not belong to IRK should be not be included in its asset register.

Management Comment

3.4.3 Controls over Fixed Assets

Observation

IRK does not carry out physical verification of its assets. The assets are also not tagged and thus
are difficult to trace the assets.
The asset register is not complete as it did not include one vehicle, KBR 312P.
The asset register did not have accurate information as some assets had a different price in the
asset register as compared to the actual invoice as shown below:

Date Description
Invoice Amount
KShs
Amount as per Asset
Register KShs
Difference
KShs
02/08/2012 GPS 36,000 35,000 1,000
03/06/2012 Mobile phone 28,000 23,999 4,001

Total 64,000 58,999 5,001

Risk

Islamic Relief is not able to ascertain the physical existence and working condition of
the assets if it does not conduct a regular verification of its assets.

Islamic Relief may also not be able to keep track of its assets if the register is not
updated with the accurate details.

Recommendation

Physical verification should be done at least once a year and the asset register updated
with the information obtained from the exercise.

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Management Comment

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3.5.1 Prior Year Recommendations not acted on

Observation
Prior year observations are tabulated below with recommendations there on and current status.

Observation Recommendation Management Action

1

Weak procurement Process

i) The organization did not maintain a record of bidders who had
participated in the tendering process
ii) Insecure public email addresses were provided as an alternative
for bids submission.
iii) Some procurement payments were supported with suspect
quotations.
iv) A tender box had not been installed in the premises for
submitting bids.
v) Bidders were not invited to witness the opening of bids.
vi) The Local Purchase Book (LPO) was not securely kept under key
and lock.
vii) Some tenders were issued 2 days to the tender submission
deadline
viii) An open tender for the supply of food packs had always
attracted only 3 bidders for all the sampled vouchers for period
under view. This was despite the tenders being advertised in
national newspaper. The same suppliers had interchangeably
won tenders on the different occasions.
ix) Two different suppliers of food packs (Fahma Traders and Vein
Logistics) for relief of drought and Ramadan had the following
suspect similarities;
Same format of invoice and delivery notes;
Both provided one cell phone number appeared to be by

i) The organization should urgently review its
procurement policy in order to enhance
competition and transparency by;
Prequalifying suppliers / contractors for regular
supplies and services for efficiency in
procurement process and to avoid dealing with
unknown suppliers / contractors.
A procurement file for each tender / procurement
should be maintained with record of all
participating bids, advertisement, procurement
committee meeting minutes, copy of contract /
order for audit trail and institutional memory.
A tender box should be installed in an open
location within the office.
Access to the tender box and emailing address
should be controlled to reduce chances of bids
being maliciously removed from the tender box or
emailed bids being deleted.
The tender advertisement should indicate the
date of tender opening and invite willing bidders
to witness the process.
Tenders should provide a reasonable time for
potential bidders to apply before the deadline for
submission and opening of tenders. This would

Management recognized the
weak procurement process
and has so far instituted
controls that will see a more
transparent procurement
process and value for money
being realized. In the period
through and after the 2009-
2011 audit, the following
measures have been
instituted in order to ensure
that the weak areas are
eliminated from the whole
process:
-Operations Manager who was
in charge of procurement has
left the organization
-A new Operations Manager
has just been recruited; the
new OM has huge experience
in dealing with USAID and
OFDA procurements among
other donor funding; this is a
great advantage for IR
Kenya as the USAIDs
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the same writer as their address without indicating their
physical address on their invoices;
Handwriting on the invoices;
Company profiles for the two were not be availed for audit;
Always the competing bidders on every occasion the
tender is advertised;
x) All bidders for supply of food packs including the winning
supplier did not indicate their physical address on their invoices.
xi) Bid analysis was done before or on the bid submission end date.
xii) Suspicious legal documents e.g Registration Certificate, PIN,
Tax Compliance Certificate had been used to support some of
the winning bids.
xiii) Supplier files were not maintained

reduce the risk of locking out more competitive
bidders from participating.
The organization should explore the benefits of
outsourcing the tendering process to increase
efficiency and transparency. This would reduce
incidences of insider interference.

ii) Due diligence should be carried out on future
selected suppliers / contractors on their physical
location, ownership, capacity to deliver before a
contract / order is signed / issued.
iii) A supplier file for pre-qualified suppliers should be
maintained with information on; registration,
ownership, copies of contracts / orders, copies
supplier invoices / fee notes for audit trail and
institutional memory.
iv) An investigation should be carried out to check
on possible fraud and appropriate measures
taken to prevent any future occurrence of the
same. Suppliers found to have been involved in
any unfair competition practice should be
suspended from participating in any future
tenders.

stringent procurement
practices shall be replicated to
strengthen the IR Kenya
procurement process.
-The procurement committee
has been revamped to include;
Finance Manager, Head
Programs section, Operations
Manager and a technical
representative. It is intended
that these office holders shall
in as much as possible be
present to attend tender
opening process otherwise
they are represented by
selected representatives.
-In order to establish
genuineness of potential
suppliers, no supplier shall be
selected without company
profile and a verification of
PIN authenticity from the KRA
online website.
-The management has agreed
to the fact that
suppliers/bidders (or their
representatives) are invited to
take part in the bid opening
process. To commence with
the next tender process
-Reasonable time shall be
afforded for tender
advertisement so that no
bidder is locked out of the
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tender process.
-The management has agreed
to embark on a supplier pre-
qualification process for those
supplies with expertise on IR
Kenyas main items of
procurement. This process
has already begun; what now
waits is the analysis of the
prequalification bids.

2

Questioned Payments

i) Some payments made in the field had the following issues:
Digits altered to increase the paid amount thus unapproved
payments.
Inconsistent details of recipients; ID Numbers and signatures.
Recipients signatures seem to have been signed by the same
person.
Wages paid were not supported with contracts.
Suspicious supporting receipts attached
Large amount paid in cash instead of cheque payment.
ii) A payment of KES. 300,000/= was supported with a bank deposit
receipt of KES. 30,000/= instead of KES. 300,000/=
iii) Water trucking sheets seem to have been filled and signed by the
same IRK staff who prepared the form. Water trucking sheets are
supposed to be signed by community members on delivery of the
water.
iv) Some of the sampled suppliers / contractors were paid in cash
instead of cheque payment.
v) Cash payments were made to government line ministries
supported with requests on suspicious letters heads.
vi) Suspicious double payment for the same service / contract.

i) We advise the management to investigate the
suspected fraud in the above findings/cases and
where it is confirmed, the misappropriated
amounts should be recovered from the concerned
staff. Disciplinary action as per Islamic Relief
Kenya human resource policy should be taken
against the staff involved. Suppliers found to have
been involved in any unfair competition practice
should be suspended from participating in any
future tenders.
ii) The management is advised to always issue casual
workers with contracts with terms of
engagement, period, ID number, telephone
contact and pay amount. Wage payments should
be supported with copies of the signed contracts
and attendance register. This would reduce the
risk of paying nonexistent casuals or alteration of
amount paid.
iii) Islamic Relief Kenya should explore the
advantages of outsourcing some project
implementation works e.g; slaughter of Ramadhan
goats, loading / off loading of food packs, waste
disposal, digging of wells etc to local competent

There have been instances
where fraudulent staff have
been involved in alteration of
documents among other
malpractices, the
management recognizes the
negative impact this has so far
instituted the following
measures;
-The organization has
instituted controls to curb any
future possibility of
documents alteration; though
spot checks of field offices
and improving competency of
field finance staff.
-Support documentation
checklist has been developed,
reviewed and begun
implementation.
-Limits of amounts made in
cash has been instituted and
followed up; any amount paid
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21

contractors. IRK staff could be involved at the
supervision level. This could reduce the risk of
fraud in casual payments, minimize the risk of
handling of large sums of cash and transfer other
liabilities due to work related risks to the
contractor.
iv) Internal controls on payments should include
review of support documents for; arithmetic
accuracy, authenticity, consistency, reality and
where possible random third party confirmations
by calling recipients. This would ensure only
genuine expenditure are authorized and minimize
chances of double payments.
v) Cash payments to casuals and workshop / training
participants should be supported with a signed
attendance register. Where possible, the register
should include own handwritten names, ID /
Passport number, date, telephone contact and
location.
vi) Large payments to suppliers should be done by
cheque to avoid risks associated with carrying
large sums of cash.

to a single supplier exceeding
KES 5,000.00 is made by
cheque. Amounts higher than
KES 5,000.00 are always paid
in cash except under
circumstances where areas
are remote and beneficiaries
do not own bank accounts, but
this is clearly justified
beforehand.
-The use of attendance sheets
in the payment for allowances
is being used at all times,
ensuring that attendants sign
it on each day of training with
own handwriting.
-All casual engagements are
done with a simple contract,
indicating the name, ID
number, amount to be paid;
before payment is done, the
contracting department signs
to verify that the works done
is in accordance with
specifications.
-Payments to government
representatives are done in
accordance with fully verified
requests and their allowances
are paid in accordance with
the government published
rates.
-Before payments are done;
the Finance Manager takes
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22

time to verify them for
arithmetic accuracy,
authenticity of documentation
and compliance with IR
Kenyas internal controls and
donor regulations.

3

Orphan 1-2-1 and OMEP Project

i) Payments under Orphan 1-2-1 and OMEP project were
withdrawn in cash from KCB Mandera and deposited to various
bank accounts instead of bank transfer. This includes Kes.
6,300,110/= withdrawn by an IRK staff on 24/3/2009 against
required procedure.
ii) A cash withdrawal of KES. 2,400,000/= from KCB Mandera and
deposited to various CBO accounts in the same bank instead of a
bank transfer. One of the supposed deposits was supported with
deposit slip of KES. 30,000/= instead of KES. 300,000/=.
iii) Equity Bank only confirmed transfer of funds by a letter and by
stamping the list of beneficiaries provided by IRK. No bank
statement was attached as evidence of payment.
iv) No Memorandum of Understanding (MOU) had been signed
between Equity Bank, Mandera and Islamic Relief Kenya
outlining their terms of agreement in dealing with these
payments/transfers.
v) We established that an IRK staff was one of four the signatories
to Mandera Micro Credit Group bank account against procedure.
A review of one of the letters to the bank revealed that the other
three signatories could only sign by a thump. This contradicted
with the representation by IRK field staff and from details of the
MOU with Mandera Micro Credit Group.
vi) Equity Bank, Mandera wrote letters to IRK confirming transfer of
funds from Mandera Micro Credit Group account to OMEP
beneficiaries even though IRK was not the account holder. It is

The management is advised to urgently
investigate the various funds transferred under
the two projects and also randomly visit and
interviewing various beneficiaries on the different
lists. Where fraud is confirmed, disciplinary
measures should taken against the concerned
staff as per Islamic Relief Kenya policy Legal due
process should be taken against any persons
involved and recovery process for any lost funds
be done.

We also recommend suspension of all future funds
transfer by Islamic Relief Kenya to Equity Salary
Suspense account and Mandera Micro Credit
Group account. The organization is advised to
open a bank account with Equity Bank from where
funds shall be transferred to beneficiaries bank
accounts.

Where collusion with bank branch staff is
suspected, an independent confirmation be made
with the Equity Bank head office and further
investigation into transaction between Mandera
micro-credit group and beneficiaries.
All future deposits to beneficiary bank accounts
should be done by a bank transfers or cheques.

In response to the audit
findings above, the
management has instituted
the following measures in an
effort to ensure that transfers
for One-to-One and OMEP
disbursements reach the
intended beneficiaries and in
the most effective and
compliant means.
-All payments to the One-to-
One orphans was done direct
from the IR Kenya Barclays
bank in Nairobi to their
respective bank accounts as
opposed to a withdrawal from
the IR Kenya KCB in Mandera
and deposit into Equity bank.
-All payments to the OMEP
are done direct from the IR
Kenya Barclays bank in
Nairobi to their respective
bank accounts as opposed to
a withdrawal from the IR
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23

expected that confirmations were to be addressed to officials of
Mandera Micro Credit Group who were the account holders. This
raised questions of the relationship between the group and IRK
given the legal status of the group.
vii) A review of the Mandera Micro Credit Group bank statements
revealed lumpsum debits to the bank account instead of split
payments to the various beneficiaries bank accounts.
viii) We noted that the following payments under OMEP II had been
withdrawn from KCB bank and deposited into Equity Bank Salary
Suspense Account instead of Mandera Micro Credit Group or
Group accounts for distribution {see annexure III(b) for details}
ix) Equity Bank does not issue statements of account for funds
transferred through the Salary Suspense account to confirm
payments/transfers.
x) A letter (internal memo) dated 1/12/2010 to Equity Bank to
debit Mandera Micro Credit Group bank account with
KES.630,000/= was a refund for the funds was made by a
cheque to Mandera Micro Credit Group on 19/4/2011. The same
amount of Kes. 630,000/= was withdrawn from KCB bank
account and deposited in Equity Salary Processing account on
17/5/2011.
xi) The following inconsistencies were noted on the Islamic Relief
Kenya transactions with Equity Bank, Mandera;
- Suspicious letters on a template format with a substandard
presentation.
- The rubber stamp that was used on the letters and
beneficiary list was different from stamp used on deposit slips
and bank statements by Equity bank. The stamp was smaller
in size, lacked inscribed date and position holder.
- The bank accountant we interviewed introduced himself as
the acting branch manager. This contradicted his later
confirmation that either the Assistant Branch Manager,
Operations manager, or Treasury Manager could act as
branch manager in his/her absence.
Kenya KCB in Mandera and
deposit into Equity bank.
-Islamic Relief Kenya and
Worldwide intends to engage
a consultancy so as to come
up with a more viable way to
implement the OMEP project,
this will also involve the
relationship IR Kenya will
have with the micro
enterprise group. To
commence once the HQ
finalizes the process.
-IR Kenya intends to
undertake an investigation
into the alleged collusion
between IR Kenya staff and
Equity bank representatives
in order to objectively
establish the actual status of
affairs. Upon obtaining the
findings, IR Kenya will take
the necessary action in
accordance with the existing
procedures. This has been
done and nothing substantial
relating to collusion was
established. IR Kenya shall
carry on with strengthening
its internal controls so that
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24

- No reason was provided for by IRK for not operating a bank
account with Equity Bank, Mandera to process beneficiary
payments. With a bank account IRK could be issued with bank
statements confirming how funds had been paid to the
beneficiaries.
- We could not independently verify the authenticity of Excel
sheets provided by the IRK staff as bank ledger to evidence
credits to various beneficiaries including a credit to a bank
account with KES. 41,630/=.

such practices shall not be
experienced in the future.

4

Payroll and Statutory Compliance

IRK is statutory required to deduct from its local employees and
expatriates and remit; PAYE, NSSF and NHIF to respective bodies.
IRK is also required to file annual returns with NGOs Board by the
30
th
May of each year.
Some of these were delayed while there was no evidence of
remittance for some months.

The management should ensure that all expatriate
staff have valid work documents in compliance
with the Kenyan immigration laws. Where
issuance is delayed, applicable taxes should be
deducted, accrued and paid once the permit has
been issued.
The management is advised to correctly compute
deduct and remit tax accruing from employee and
expatriates income using prevailing tax rates and
remit the same to KRA to avoid possible penalties
and fines by KRA.
All disallowable benefits including medical cash
allowances should be included in the taxable of
employees.
All statutory deductions from staff should be
timely remitted to avoid penalties and fines.
Management is advised to move with speed to
apply for renewal of the tax exemption certificate.
We recommend consolidation of Islamic Relief
Kenya and Somalia programme financial
transactions to correctly report the financial
position of Islamic Relief financial transactions.

The management has been
able to ensure compliance
with the following in an effort
to abide by the prevailing
legal and institutional
requirements.
-All expatriate staff engaged
with IR Kenya now have valid
work permits; no expatriate is
allowed into the country
without due process and a
valid work/residence permit.
-All expatriate staff remit
their due takes in time as
other national staff - by 9th
of the next month.
-No staffs now receive cash
for medical allowances;
medical services are
contracted to an established
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25

provider (APA insurance
company).
-Islamic Relief Kenya and
Somalia is looking into
consolidating their accounts
once the audit process for IR
Somalia is completed. This
has been agreed with the IR
HQ.

5

Fixed Assets Management

i) Some sampled assets purchased costing more than $ 500 had
been expensed.
ii) Fixed assets register was not updated, some assets were
missing from the fixed asset register.
iii) Other than motor vehicles, all other assets had not been
insured.

Management is advised to consistently apply the
organizations policy on capitalization of assets
valued at $ 500 or more for fixed assets
purchased. Any change to the policy should be
documented for consistency.

The asset register should always be updated with
movement in assets including additions and
disposals. This would enable proper tracking of
the assets.

The management is urged to evaluate the benefits
of taking insurance cover on assets to mitigate
financial loss in the event a theft or any natural
calamity happening.

In response to the lack of
proper adherence to policy,
lack of proper documentation
and unrepresentative asset
register, the management has
instituted the following:
-Employment with a
competent and experienced
Operations Manager who will
be tasked with standard tasks
like; routine updates of assets
register, evaluate and explore
the cost/benefit of insuring
assets other than vehicles
among other compliance
items.
-The management has
requested the logistics
department to furnish it with
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26

monthly updated assets
register, which will include
additions and disposals for the
reporting period.
-Staff capacity building is
currently under
implementation, in order to
ensure that all aspects of
assets management
practices are adhered to.

6

Cash and Bank Management

A review of the cash and bank balances internal controls indicated
that:-

i) No regular cash reconciliations were prepared for period
under review.
ii) Lack of segregation of duties; the staff who prepares payment
vouchers, also writes the cheques, records payment
transactions in the cashbook and acts as the official bank
agent (authorized to withdraw cash from the bank).
iii) Most bank reconciliations were prepared late with backdated
signatures.
iv) Cash levels in excess of the minimum allowed of KES.50,000
/= balances were kept in the office.
v) Payment to some of the contractors were by cash instead of
cheque as the preferred mode of payment.
vi) All sampled cancelled cheques did not have reason for
cancellation indicated on them.

The management is urged to adhere to its
financial guidelines on cash by ensuring that cash
reconciliations are prepared at least once a week
and reviewed by the supervisor. The reconciliation
certificate should be filed for. Impromptu cash
counts should be performed by the supervisor to
confirm cash balances. This will reduce risk of
misappropriation of cash.
The management is encouraged to explore ways
of segregating duties in the finance departments
by separating duties of staff who initiate
payments from writing of cheques and
withdrawing of cash from the bank. This would
minimize risk of fraud arising due from lack of
segregation of duties.
Bank reconciliations should be prepared on a
monthly basis within a reasonable time,
preferably before the 10th of the following
month. This will enable timely correction and
minimize chance of errors or mistakes passing

The management
acknowledges weak points
relating to cash and bank
practices and has so far
instituted the following
measures:
-Bank reconciliation is done
through the QuickBooks
system as opposed to the
excel formats; this is done by
the 5th of the next month,
reviewed and approved by a
supervisor. This is also dated.
-Cash payment vouchers are
now being used to make
payments as opposed to the
use of journals; each cash
payment is verified and
approved before payment is
made.
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27

unnoticed on bank statements / cashbook.
Management is advised to always pay suppliers /
contractors by cheque. Cash should only be used
for paying sundry office and field expenses.
-Cash reconciliation is
performed on a routine basis
through the system; and each
time before more cash is
requested.
-There now is a separate staff
for making payments while
the other does data entry; this
ensures segregation of duties
between those making
payments and those recording
those payments.

7

Consultancies and Contracting

i) Withholding tax was not deducted on all the sampled labour fee
charged by works contractors.
ii) Some of the sampled consultants were paid as casual workers
without deducting Withholding tax for amounts that qualified
for deduction.
iii) Certificates of work completion issued to consultants and
contractors were not dated.

The management is advised to adhere to the
Income Tax requirements on Withholding tax.
Withholding at the rate of 3% on all labour fees
should be charged and remitted to KRA before the
20th of the following month. Where the
contractor does not distinguish between labour
fees and cost of materials, the tax should be
charged on the total invoice amount.
All other short-term contractors paid at least KES.
24,000/= should be charged withholding at the
published rate and remitted to KRA by the 20th of
the following month to avoid possible fines and
penalties by KRA.
We advise the management to include a provision
for date on certificates of work completion to help
in verifying compliance with contract terms on job
completion.

-Withholding tax of 3% on all
construction contracts is now
deducted as source and
submitted to the Kenya
Revenue Authority.
-Consultancy tax of 5% is now
deducted at source and
submitted to the KRA.
-On all construction contracts,
the respective technical
departments contact person
verifies that the work is done
in accordance with the
contract before payment is
done. This is in form of a
completion certificate.

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8

Accounting System
i) Field office control accounts were not reconciled with the
Nairobi office balances.
ii) We noted double booking of accruals in books of accounts while
some expenses had not been accrued in the financial records.
iii) Some prepaid expenses had been expensed instead of being
recognized as a receivable asset until utilized.
iv) Deposits made during the period under review were not
recognized in the financial records but expensed.
v) Mandera and Wajir cash books had negative balances.

The management is urged to always apply the
recommended accounting standards on income and
expense recognition by matching incomes and
expenses to the period they were incurred. This would
lead to consistency and correctness in financial reports

-IR worldwide has begun
implementing an online
finance system, it will soon be
rolled out in the field offices
including IR Kenya; as this
system is superior to the
QuickBooks software
currently being used, this will
go a long way in enabling
accurate recording of
expenses.
-IR Kenya Finance Manager is
currently looking into the
benefit of having a different
QuickBooks company in the
field offices as opposed to a
similar company both in
Nairobi and in the field offices.
-The Finance Manager is
looking in to other ways of
tracking field transfers and
expenses in the place of
control accounts, as at now,
control accounts do not serve
their purpose.
-The Finance Manager intends
to ensure accrual recording is
centralized to avoid situations
where accruals are double-
posted. Also the FM is moving
to ensure that accruals is only
done based on
Contracts/POs/Invoices and
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29

not based on invoices as is
currently done in some
instances.

9

Accounting for Advances

i) Some of the sampled project cash advance payments had been
directly expensed before the actual expenditure was accounted
for by staff.
ii) There were no adequate procedures governing accountability
of project cash advances. The documented procedures lacked
guidelines on the period for accounting for staff advances.
iii) Some liquidations had suspect supporting receipts /
documents.
iv) Staff advances amounting to KES. 827,151/= had been written
off in the year 2010 without proper explanations.
v) We noted long outstanding advances some more than six (6)
months old.
vi) No traceable log-in password in the multiuser QuickBooks
accounting systems

Management is advised to review and update
procedures on staff advances to ensure proper
management e.g all cash advances to be
authorized by a designated officer and recorded
in the books of accounts as a receivable, each
advance should be booked to individual staff
ledger account for ease of tracking. After
accounting for such advances, the expenditure
should then be recognized. Supporting documents
should be attached to float liquidation forms,
reviewed and authorized before the expenses are
posted into the system. All unutilized advances
should be immediately surrendered to the cashier.
The policy should provide maximum period for
float liquidation. Un-surrendered floats after the
expiry of the time limit should be recovered from
staffs salaries.
The suspect receipts /documents should be
received and verified for authenticity and
corrective action taken. Additional tests should be
done on all other staff advances taken during the
period.
All uncollectable advances should be properly and
adequately explained before being approved for
write off.
All long outstanding advances should be reviewed
and necessary action taken to recover them,
where uncollectible approval for write off should
be sort.

In order to further strengthen
staff advance procedures, the
following safeguards are
currently being implemented;

-Staff advances are only given
in situations where a direct
payment via cheque to a
supplier/service provider is not
feasible and practical.
-When staffs are issued with an
advance, its immediately
recorded as a receivable in the
accounts; this is then expensed
when the advance is accounted
for.
According to IR Kenya
procedures, staffs are given a
maximum of 10 working days
after completion of the
activity to liquidate advances.
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30

We also urge the management of review of the
current policy manual to suite the local
operational environment.

10

External Audits

i) The latest external audited reports were for year 2008 accounts
which were signed off in the year, 2012 3 years late).The 2009,
and 2010 audits have been concluded in year 2012 ( 2 years and
1 year late respectively)
ii) The 2008 management letter was not availed for audit.
iii) Lack of internal audit and monitoring department.

Management is urged to ensure that external
audit to review the internal controls of the
organization and the books of accounts as
provided for in the IRW financial guidelines and in
compliance with statutory requirements is
concluded on time. The external audit gives an
assurance that accounting standards have been
adhered to, and that statutory and professional
rules have been complied with and the report is a
'true and fair' representation of the affairs of the
organization. Where the audit is done late, the
organization may miss the benefits of promptly
improving the internal controls where the auditor
recommends.

The external auditor should be required to issue
management with a management letter audit
findings to be discussed by the management and
actions on how the organization will address the
issues highlighted put in place with timelines. The
management letter should be submitted to the
head office as provided for in the financial
guidelines.
We advise the management to explore the
possibility of outsourcing internal functions to
perform routine reviews of the procedures.

The management has agreed
to ensure that there will be no
more delays in undertaking
annual audits; the 2012
external audit shall be carried
out by Feb/March 2013 as
provided by IR regulations.
The management also will look
into ways of engaging internal
audits to establish and advice
on the status of internal
control systems.

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31


11

a) Finance
In the field offices, the finance officer has both custody of assets and
the accounting roles. For example, same staff prepares payment
vouchers, maintains and writes and cheques, is also the bank agent.
He / she is also in charge cash book and prepares reconciliations.

b) Procurement
The logistics is responsible for writing Purchase Requisition Notes,
receives quotations, sits on the procurement committee, writes and
authorizes the L.P.O. and receives delivery of procured goods.

User department line manager(s) approves Purchase Requisition
Note, chairs the procurement committee, and authorizes payment.
One line same manager also is a bank signatory.

c) Consultancy
The programme manager (single) sources for consultants, drafts
terms of reference, negotiates consultancy fee, countersigns the
contract, issues the work completion certificate, approves payment
and signs the cheque/bank transfer.

The management is advised to come up with a risk
assessment tool that that reflects the probable risk
exposures in line with Islamic Relief Kenyas type of
operations.

Finance: There are two
finance staffs in each field
office, finance officer and
finance assistant. Finance
officer is charged with
supervisory, verification and
field authorizations while the
finance assistant, is
responsible for making
payments and recording them.
The recorded transactions are
reviewed by the finance
officer before they are sent to
Nairobi for further verification
by the staff in Nairobi. In the
Nairobi office, there is
segregation of duties in most
of finance tasks; one finance
assistant prepares payments
while the other records them.
Finance officer reviews the
recorded transactions for
accuracy. Finance Manager
does overall review and
approval of all financial
transactions.
Procurement: Purchase
requisitions are written by the
requesting department; after
its all approved, they are sent
to the logistics staff who will
in turn source for quotations
and since there are more than
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32

one logistics staff for each
field office, there is
segregation of duties as its
not the same staff who sits in
the committee who also
receives the goods. LPOs are
written by logistics staff but
verified by the Operations
Manager before signed by the
country director.
Consultancy: Request for
consultants is done by the
respective technical
department, they also do the
terms of reference; the
service is then advertised in
the national newspapers,
quotations are analyzed by a
penal constituting the head of
programs, M&E and the
requesting department.
Completion certificate is done
by a representative of the
technical department

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33

Risk

Significant weaknesses may still recur.

Recommendation

Prior year audit recommendations should be acted on to avoid recurrence of issues in
subsequent audits and to improve on the organizations internal control.

Management Comment

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34

4. Islamic Relief Somalia - Findings on Internal Controls Systems


4.1.1 Unsupported Expenditure

Observation

There were instances where some transactions were not supported while others were
inadequately supported, as shown below:-

Date Document No. Description Amount KShs
21-Mar-12 JVN12/3/118 Water Trucking 1,777,792

Total 1,777,792

Food distributed to the communities made by Islamic Relief did not have a signed list to
show acknowledgement of receipt by the beneficiaries. However, community
representatives, IRS distribution and monitoring staff sign the distribution.

Date
Document
No. Description
Amount
KShs
20-Jul-12 JVN12/7/086 3.2.Food Aid:3.2.Cereals 5,106,250
29-Jun-12 JVN12/6/173 C3.1.Food & Nutrition:C3.1.2.Wheat Flour 1,720,000
29-Jun-12 JVN12/6/194 D9.Cooking Oil-1000HH For 1 Month 4,829,330
4-Apr-12 JVN12/4/029 C3.1.Food & Nutrition:C3.1.2.Wheat Flour 1,758,164

Total Items Distributed 19,218,744

Risk

Payments may be made for services/goods not received.

Recommendation

All expenditure incurred should be supported with adequate documentation.

Management Comment

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35

4.1.2 Irregular Payments made through Galaxy Star International Trading Limited

Observation

We noted that payments to some destinations in Somali are made through Galaxy Star
International Trading Limited. Galaxy is company headquartered in Dubai and with
offices in Nairobi and Mogadishu. The agreement between Galaxy and Islamic Relief
states that Galaxy shall transfer funds on behalf of the NGO to specific locations in
Somalia at a commission charge of 1.6% of the total funds transferred.

The use of agent to transfer funds may indicate that Islamic Relief may not have access
or presence in the Al Shabaab controlled areas.

For example Dalmar Fuel Company supplied clean water to 3 Districts in Somalia at a
cost of USD 13,650. In the invoice dated 15 March 2011 the company supplied their
bank details. Islamic Relief transferred the funds through Galaxy instead of transferring
the funds directly to the bank account details provided by the supplier.

We were not able to justify the reason why suppliers in Somalia were being paid through
Galaxy instead of being paid directly to the suppliers in their indicated bank accounts

Risk

Fraud/Money laundering may be easily perpetrated.

Recommendation

Further investigation should be considered to determine the presence of Islamic Relief
in these areas and whether funds transferred through Galaxy are for the intended
beneficiaries or Galaxy itself.

Management Comment

4.1.3 Incomplete tender analysis forms

Observation
The tender analysis opening tables had not been completed in several instances
including bids for Class rehabilitation, value USD 290,555, awarded to Barwaqo Trading and
Construction Company and Construction of temporary classrooms, value USD 102,851,
awarded to East African Construction Company. There was no evidence of detailed technical
analysis of the bids on file.

Risk

Islamic Relief may collude with the suppliers to award tenders to specific suppliers.

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36

Recommendation

Further investigations should be conducted to identify the owners of the companies
being awarded tenders irregularly. The purpose of the investigation will be to identify if
there is a conflict of interest being exhibited by the management of Islamic Relief by
virtue of ownership of supplying organisation

Management Comment

4.1.4 No evidence of completion of projects

Observation

We noted that the infrastructure projects awarded to East African Construction
Company and Barwaqo Trading and Construction Company, project reports and
photographs of the completed projects or projects under implementation were not on
file.

These projects were worth a total of USD 393,406, as detailed below:

Reference Recipient Value (USD)
JVN 12/5/103 Barwaqo Trading and Construction 290,555
JVN/12/5/102 East African Construction 102,851

Total 393,406

Risk
Payment may have been made to the construction companies for construction not yet
done.

Recommendation

Field visit should be conducted by an independent person/organisation to confirm
whether these projects were fully implemented. The independent person will be
expected to provide a report on the current status of these projects.

Management Comment

4.1.5 Tenders Awarded to Related/Same Entities

Observation

We noted that East African Construction Company, Barwaqo Trading and Construction
Company and Doy Construction Company submitted several documents including bank
statements and company profiles while bidding for construction and rehabilitatiaton
projects.
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37

We also noted that parts of their company profile documents had similar formats,
including headers and font styles and their bank statements were all unsigned and
unstamped and also originated from the same bank.

This implies that these three companies are related or are under the control of the
same entity; or that these documents were prepared by the same person.

Risk

The tender analysis done may not be of value as the quotations provided originate from
one source.

Recommendation

Further investigation should be considered to ascertain the authenticity of these
documents and the relationship of the three construction companies.

Management Comment

4.1.6 Uncertified bank statements submitted by bidders

Observation

East African Construction Company, Barwaqo Trading and Construction Company, Doy
Construction Company and Illays Construction Company submitted unsigned and
unstamped bank statements from Dahabshil Bank as part of their bid documents. This is
unusual as standard procedure for many banks is to sign/stamp statements intended
for use by a third party, as proof of their validity.

The Dahabshil bank confirmation provided by another bidder (Jubba Valley Railway)
were signed and stamped by the bank manager, unlike the other documents described
above.

The bank statement submitted by East African Construction Company contained two
transactions bearing the same reference (Ref 5785675). The values of these two
transactions were different - one USD 380,000 and the other USD 82,000.

All other transactions in this and other bank statements were serialised, with there
being no other transactions with the same single reference, unlike in this specific
incident.

Risk

The bidders submitting their tenders may not be the actual account holders.

Recommendation

Further investigation should be considered to ascertain the authenticity of the bank
statements.
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38

Management Comment

4.1.7 Inconsistencies in accountability for funds issued

Observation

We noted that in the supporting schedules to journal voucher JVN12/6/202 for USD
53,760 (Payment of teachers' incentives) the telephone numbers of individual teachers
were used as part of their identity criteria. Telephone number 615769696 was used to
represent two teachers, for two different payments of USD 420, as was telephone
number 6153556.

Risk

Double payments may be made to some teachers.

Recommendation

Further investigation should be conducted by an independent person/organisation to
verify the presence of teachers in the various schools.

Management Comment

4.1.8 Attendance lists for teachers

Observation

We perused the attendance list for teachers and noted that in some instances the
signature was similar for all the teachers.

Risk

Double payments may be made to some teachers.

Recommendation

Further investigation should be conducted by an independent person/organisation to
verify the presence of teachers in the various schools.

Management Comment

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39

4.1.9 Counterpart Contribution not Verifiable

Observation

The WASH project is funded by UNICEF and Islamic Relief at 75% and 25% respectively.
We found that there are 27 projects whose funds are banked in one Barclays Bank
account. The funds from various donors are commingled in one account. Since all the
projects use one account, it was impossible to ascertain the 25% Islamic Relief
contribution to the WASH project.

Risk

Islamic Relief may not be meeting its contractual obligation of contributing its 25%
share of the budget.

Recommendation

A reconciliation of all the donor funds banked in Barclays Bank Account should be
conducted to verify whether Islamic relief has been providing 25% of the required
funding.

Management Comment

4.1.10 Differences in Quantities Requested and Quantities Paid for

Observation

Islamic Relief entered into an agreement with Dalmar Fuel Company in respect to
emergency response water supply on 8 March 2011. The agreement was to supply 8
trucks of 10,000 litres of water to villages around Galdogob (total 80,000 Litres), 6
trucks of 10,000 litres of water to villages around Harfo (total 60,000 Litres) and 7
trucks of 10,000 litres of water to villages around Jariban(total 70,000 Litres).

We noted that contrary to this agreement, Dalmar Fuel Company invoiced for 800,000
litres, 700,000 and 700,000 litres respectively This represents a loss of USD 25,605.

Dalmar Fuel Company seems to be primarily a fuel company given its name and
company logo.

Risk

Islamic Relief may have paid for goods not received.

Recommendation

Further investigation should be considered to determine the actual quantity of water
supplied, the reason for the inflated invoices and the nature of this company.

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40

Management Comment

4.1.11 Construction of Pit Latrines in Mogadishu Benadir Region

Observation

Tayo Constructon Company was awarded the tender to construct pit latrines in
Mogadishu Benadir Region. We reviewed the documentation and noted that the
following mandatory pre-requisite documents as per the check list payment were not
attached before the payment was made:
There are no 3 mandatory quotations attached. However there is an undated Bill
of Quantities which is not printed on the companys letterhead.
Bid evaluation form
Purchase Order
Invoice
Photos
Company/supplier registration copy
Screening compliance

Islamic relief issued a certificate of completion to Tayo Construction Company through
Ashir Ibrahim Nageye. We noted that the certificate was issued on 15 April 2012. The
certificate indicates that the project commenced on 20
th
March 2012 and completed on
29 April 2012. The issuance of the certificate before the completion date casts doubt
on the construction of toilets.

Risk

Staff from the two companies may be colluding to perpetrate fraud.

Recommendation

UNICEF Somalia should consider instituting further investigation to confirm that the pit
latrines were constructed.

Management Comment

4.1.12 Purchase of drugs from Salochin Pharma

Observation

Islamic Relief purchased medicines for Health Facilities in Afgooye through LPO number
S/5334/11 dated 15 April 2011 at a cost of Kshs 6,182,398.00. We noted that the
quotation received from Salochin Pharma was dated 16 April 2011. This implies that
the LPO was issued before a quotation was received. We perused the bid evaluation
form and noted that the document was undated and therefore we could not ascertain
when the evaluation was done. However, we noted that the other quotations from other
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41

bidders; Rangechem Pharm Ltd, Ansell Pharm,. Ltd and Surgik Pharm. Ltd were dated
15 April 2011.

Risk

There may be cases of collusion between the Islamic Relief staff and the supplier.

Recommendation

Further investigation should be considered to determine whether the bid was fixed to
favour Salochin and which Islamic Relief staffs were involved in violating organisations
procurement procedure.

Management Comment


4.2.1 Incomplete Personnel Files

Observation

We noted that some personnel files lacked crucial documents. These include:

Name Position Documents Missing
Abdullahi Ahmed Media Coordinator Academic,C.V. and
Professional Certificates
Abdirisak Hassan Project Support Coordinator Academic and Professional
Certificates
Mohamed Adan Ali Logistics Coordinator Academic and Professional
Certificates
Mohamud Ali Mohamed program Coordinator Academic and Professional
Certificates
Alinur Ibrahim Sheikh Nutrition Officer Academic and Professional
Certificates
Alex Maingi Finance Coordinator Academic and Professional
Certificates
Hassan Abdi Mohamed Programme Assistant Academic and Professional
Certificates
Amos Cherogony Wash Project Manager Academic and Professional
Certificates
Anthony Nyota IT Officer Academic and Professional
Certificates
Abdirizak Hussein Food Security Coordinator
Academic and Professional
Certificates

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42

Risk

Employees hired may not have the requisite qualifications if they do not produce their
certificates

Recommendation

Personnel files kept should have all the relevant information that pertains to an
employee.

Management Comment

4.3 Cash and Bank

4.3.1 Errors in Preparation of Bank Reconciliations

Observation

The dates of preparation and review of bank reconciliations are not indicated and thus
we could not ascertain their timely preparation or review. Outstanding cheques are also
not dated and thus it is difficult to know which cheques are stale.
There was a long outstanding cheque (No. 102557) of KShs 22,400, which had gone stale and
still appeared in the bank reconciliation statement of June 2012.

Risk

Errors in the bank reconciliation statements may lead to misstatement of the cash
balances.

Recommendation

Bank reconciliations statements should be dated on preparation and on review.
All stale cheques should be reversed.

Management Comment

4.4 Fixed Assets

4.4.1 Incomplete Asset Register

Observation

The assets register is incomplete as it lacks key details such as the assets tags/
registration numbers of some vehicles. This makes it difficult to physically identify the
assets.

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43

Risk

Islamic Relief may not be able to keep track of its assets if the register is not properly
updated with the correct details.
Recommendation

The assets register should be kept up to date with key details that can be used to
identify the specific assets.

Management Comment

4.4.2 Missing Logbooks

Observation

Vehicle logbooks for all vehicles were not provided for our review and thus we could not
ascertain whether the title of the vehicles vests with IR Somalia. IR Somalia does not
keep the log books in their possession of all the vehicles in the field.

Risk

The vehicles listed in the asset register may not belong to Islamic Relief and thus do not
have the title to the same.

Recommendation

Vehicle logbooks shows the owner and thus for all its assets, IR Somalia should have
legal documents as proof of ownership.

Management Comment

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INTERNAL CONTROL REVIEW REPORT

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